Six Ways to Maintain Quality Chinese Manufacturers

Auditing, testing, and continuous improvement are worth their weight in finished goods

Published: Wednesday, March 18, 2015 - 10:17

What are the best ways for a foreign company to monitor quality at a contract Chinese manufacturer? What groundwork should you lay before working with a Chinese supplier?

It should come as no surprise that China remains a major manufacturing hub for buyers abroad. As of 2013, Chinese suppliers were producing more personal computers, cell phones, energy-saving lamps, solar panels, air conditioners, and shoes than any other nation on the planet. These days, you have your pick among a seemingly endless list of suppliers in China, all eager to get your business, and all touting their ability to make a quality product.

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But as many buyers are finding out, compliance with quality and other standards can be a major issue. A 60 Minutes segment that aired this month revealed a startling discovery related to Lumber Liquidators, a U.S. company and the largest retailer of hardwood flooring in North America. The report found that Lumber Liquidators was selling China-made laminate flooring that contained high levels of formaldehyde, a known carcinogen. Some samples tested contained as much as 13 times the formaldehyde emissions limit set by California.

Where did the retailer go wrong? And how can you monitor quality at your Chinese manufacturer? Before you place an order with a Chinese manufacturer, there are a few steps you should take to set expectations.

Audit the Chinese manufacturer

The best way to get an idea of a supplier’s ability to manufacture your product is to go to the factory, or hire a professional third party to do so, and carry out an audit. Factory audits are generally conducted based on the internationally accepted ISO 9001 quality management standard. A professional audit of this kind should be able to answer many relevant questions, including:
• Does the supplier have the necessary legal licenses and certification (e.g., export license)?
• What processes does the factory perform, and what equipment do they have for manufacturing your product?
• Has the supplier implemented its own quality management system?
• Does the factory perform incoming quality control (IQC) on raw materials and components?
• Are any chemical materials properly labeled and stored to prevent contamination?
• Do the factory’s own quality control (QC) staff perform final inspections, and do they have work instructions for inspections?

Carrying out a professional audit of a Chinese manufacturer helps you reliably determine if you’re working with a competent and capable supplier in China.

Draft a vendor guide with terms and conditions

Maybe you’ve audited a Chinese manufacturer, and you’re confident that you’d like to work with it. The next step is to set expectations as explicitly as possible, typically done by creating what’s sometimes called a “vendor guide.” This is a document outlining policies and procedures that a manufacturer must abide by in order to work with a particular buyer. Vendor guides often can be quite lengthy, particularly those for larger retailers like Walmart. Vendor guides typically include guidelines related to social compliance, shipping and logistics, packaging standards, approving samples, and receiving authorization to start production.

Perhaps the most crucial component of any effective vendor guide is a terms and conditions agreement. This should specifically address areas including:
• Payment terms
• Nondisclosure agreement
• Penalties for late shipments or defective orders
• Right of inspection
• Exclusivity, i.e., to what other markets the supplier can distribute

Allow enough time for clarifying the finer points so you can come to an agreement that’s reasonable to both parties. Remember that a supplier will often promise you the world before you place an order, only to under-deliver once you’ve paid the deposit. A vendor guide with terms and conditions agreed on by the Chinese manufacturer helps clarify expectations and ensures you’re working with a supplier you can trust.

It’s worth mentioning a major cultural difference here. Business agreements are treated by Chinese partners more casually than they would be by American or other Western partners. As Westerners understand it, a contract signed by two parties signifies a legally binding agreement. But in China, contracts are often treated merely as a set of guidelines to follow in good faith. Although you may have reached an agreement with a Chinese manufacturer, you may find the situation changes from time to time, and the manufacturer deviates from the agreed upon contract. Such has led to the frustration of countless buyers overseas.

This apparently loose adherence to written agreements was much more common 10 years ago than it is today, and it will likely be less common 10 years from now. Many larger foreign companies are able to take their manufacturers to court and successfully settle legal disputes in their favor—often citing written agreements. On the other hand, owners of small and medium-sized businesses should first consider if the money needed for litigation will be worth the gains from winning a court case. No matter the size, a foreign company’s best chance at success is to hire Chinese legal representation and plead its case in Chinese court.

Now you’ve laid the groundwork for successfully partnering with a Chinese manufacturer. You’ve found a supplier that can make your product the way you’ve specified by conducting an audit of its factory. You’ve made your expectations clear by drafting a vendor guide with specific and agreed upon terms and conditions. So how can you be sure that production remains on track and quality is maintained after you’ve placed an order?

QC checklist development and product inspection

After you’ve placed an order with a Chinese manufacturer, there’s perhaps no better way to monitor product quality than by conducting a product inspection on-site. If you and your Chinese manufacturer have a reasonable agreement in place for working together, you should have established your right to inspect. This should give you—or a third party of your choosing—access to visit the factory in which your goods are being made and verify product quality and order status firsthand.

If you’re going to hire a third party to carry out a product inspection on your behalf, it’s best to prepare a QC checklist ahead of time, preferably before placing an order. Just as product specifications and the vendor guide help to convey expectations to the manufacturer, a QC checklist serves as a reference for the factory during production. A checklist also lets the inspector know what to verify during inspection. Although the level of detail can vary depending on the buyer’s needs, most QC checklists should contain the following:
• An acceptable quality limit or sampling plan
• Packaging, assortment, and styling information
• Product materials, construction, and dimensions
• A list of any on-site testing required
• Required inspection equipment and who is responsible for providing it, e.g., Pantone color swatch or battery/voltage testing device
• A list of potential defects
• A list of acceptable quality issues

A thorough QC checklist allows a more thorough inspection of your products and better reporting. Moreover, providing any product return data you might have goes a long way toward giving your suppliers clear feedback on quality issues.

When to conduct product inspection is entirely up to you. Inspections at different stages of production yield different insights into your order quality and status. A product inspection carried out closer to order completion and shipping, for example, will tell you more about the condition of the finished product and what you can expect to receive. However, if an inspection near the end of the manufacturing process is the only inspection conducted, you may find defects related to a production process that occurred earlier, which at this point may be too late to correct or mitigate.

Lab testing

Many buyers supplied by Chinese manufacturers insist on having their products tested in a professional lab, often relying on the help of a third party. There are a host of different reasons why lab testing may be necessary for a particular product. A buyer of power banks for mobile electronics, for example, may choose to test products for electrical capacity. A buyer of car tires might test for performance and safety. And to return to the example of Lumber Liquidators, the company would have done better to have its products routinely tested for material composition and toxicity.

Whatever the product, it can be difficult for buyers to be confident about the quality of parts and materials without performing some kind of testing in a qualified lab. A qualified lab should hold accreditation from bodies like HOKLAS or ACLASS. Routine—or even randomized—lab testing can help you to be sure your Chinese manufacturer is making a product that meets your standards one production run after another.

Process auditing

Process auditing is a key function of quality maintenance and improvement. Part of fostering a good, working relationship with your Chinese manufacturer means helping it to improve, rather than butting heads. By visiting the factory and taking a close look at the production processes, you may be able to identify ways that the factory can improve. Improvement may come in the form of rectifying a recurring defect by creating a corrective action plan. Improvement could also mean finding inefficiencies with a process that, if properly addressed, could save the manufacturer time and money. Keep in mind that you’re working with a Chinese manufacturer, and that means it may have some catching up to do to meet U.S. standards or other regulations.

Social compliance auditing

Just as a Chinese manufacturer may be using outdated production processes, it may also be using outdated labor practices. Social compliance is an issue that came to the forefront of many retailers’ agendas with the infamous and fatal garment factory fire in Bangladesh in 2012. The resulting investigation uncovered poor safety measures within the factory and led to a public relations disaster for the brands involved.

A shift in consumer attitudes toward social compliance has placed the responsibility on retailers to ensure their suppliers are meeting ethical standards. Major brands like Target and Disney have their own standards they dictate to suppliers and enforce. So you’ll want to make sure that your Chinese manufacturer can meet any standards set by retailers to which you distribute. This means carrying out social compliance audits to ensure that, if your retailer suddenly decided to conduct a formal audit of your supplier, the result would be acceptable.

Helping your Chinese manufacturer improve social compliance could be as simple as asking them not to block fire extinguishers with finished goods in storage. Improving could mean installing a first-aid kit near the production line, or ensuring that workers are being provided with insurance. Social compliance may not be the first thing that comes to mind when managing quality of a Chinese manufacturer. But neglecting social compliance has the potential to put you out of business.

Conclusion

Many buyers continue to source goods from Chinese manufacturers to reap the benefits of low-cost labor and materials. But monitoring quality is among buyers’ chief concerns when choosing suppliers. Before placing an order, it’s important to audit your Chinese manufacturer to get a clear view of its capabilities and to answer pertinent questions. It’s also vital to create a vendor guide with clear terms and conditions for your supplier to follow in order to protect yourself as the buyer.

When you’ve chosen a supplier, test the product in a certified lab to make sure that it meets your standards. Develop a QC checklist and carry out inspection at the factory to be sure that mass production lives up to your expectations. Conduct process auditing to root out any inefficiencies or issues related to the production process. And finally, make sure that your Chinese manufacturer is adhering to your standards for social compliance by verifying factory conditions with an audit on-site.

Stick to these six ways to maintain quality when working with Chinese manufacturers and steer clear of the troubles faced by Lumber Liquidators.

About The Author

John Niggl

John Niggl is a client manager at InTouch Manufacturing Services, an American-owned company that provides solutions for quality and overseas manufacturing issues through product inspection and related quality control services.